Australia’s fifth largest bank, St George (SGB), has sent an indication it is considering increasing its lending rates, including home loans, by as much as 40 basis points, or 0.4%.
The news comes after Adelaide Bank (ADB) yesterday announced that it had raised its wholesale mortgage rate by 40 basis points exceeding the Reserve Bank’s (RBA) 25 basis point (0.25%) increase in official rates on Tuesday.
At an institutional and business bank update today St George Managing Director and CEO Paul Fegan made the rate rise admission.
When asked by an analyst how much above the latest 25 basis point official rate rise St George would need to reprice its products to fully cover higher funding costs, Mr Fegan replied:
”Broadly, when we look at it, the number is around 15. So 25 plus 15 … so 40.”
The Sydney Morning Herald said Mr Fegan referred back to the rate rises in January when the major banks increased their rates independently of the Reserve Bank to cover the cost of the global credit crunch.
”Our propensity to act and how we think about these things was demonstrated in January,” Mr Fegan said.
”We didn’t go 18, 12, 15… we went 20 (basis points).”
Mr Fegan also commented on the Reserve Bank increasing the cash rate by 25 basis points to 7.25% this week.
”The real sensitivity frankly is around housing. There’s a very deep understanding of the economics of what’s going on.”
”In fact from the Reserve Bank’s comments … there’s a very implicit, if not explicit, expectation that some of the slowing of consumer demand will be taken by banks acting outside of the 25 (basis point rise). We’ll make our decisions when we make them.”
St George today also announced today that it remains on track for 10% grown in earnings per share this year.
Nonetheless, the bank noted that its reported margin would be affected by the higher liquidity it needed to maintain.
It forecast underlying margin contraction of around 10 basis points, including the impact of higher funding costs.
St George said the credit quality in its business banking operations remained robust, and that it was closely monitoring its exposures to individual entities.
St George said it ”remains appropriately provisioned with for existing market conditions”.
”Credit quality in retail division remains excellent, with the arrears performance strong.”
Shares in St George shares were up 46 cents, or 2.13%, to close at $22.01.
